Thursday, May 3, 2012

The One Chart that Shows that for Most People, the Economy Broke in 1973

What does this chart show? It demonstrates that from WWII until about 1973, average workers in the USA shared in the benefits and reaped the fruit of their own increased productivity.

It also shows the extent to which, for most people, the economy broke in 1973. The fundamental bargain that underpinned the American dream - "if you work harder, you'll proposer" - simply stopped being true.

“The big shift is really in the ’80s, which I would attribute to [Fed Chairman Paul] Volcker’s recession in 1980-82, which killed workers,” said Dean Baker, co-founder of the Center for Economic and Policy Research, who hasconducted similar studies. “A high dollar in the mid-80s amplified this effect. You also had the anti-union policies of the Reagan administration.”

Since then, public policy has exacerbated the problem,accordingto EPI President Larry Mishel. “The continuing growth of the wage gap between high and middle earners is the result of various laissez-faire policies (acts of omission as well as commission) including globalization, deregulation, privatization, eroded unionization, and weakened labor standards,” he writes. “The gap between the very highest earners — the top 1 percent — and all other earners, including other high earners, reflects the escalation of CEO and other managers’ compensation and the growth of compensation in the financial sector.”

This isn’t a global problem, either. Some major economies — the UK and Canada — have experienced similar shifts, but others, including France and Italy, did not, according to Baker.

The consequences of not restoring the link — and, thus, a rising standard of living for most workers — are grim, and point to either persistent sluggish growth or recurring asset bubbles. But to accomplish this, Mishel argues, will require divisive policy shifts impossible in the current political climate. “It is hard to see how reestablishing a link between productivity and pay can occur without restoring decent and improved labor standards, restoring the minimum wage to a level corresponding to half the average wage (as it was in the late 1960s), and making real the ability of workers to obtain and practice collective bargaining.”

Simply put, the economy broke for most people in the 1970s, and the fundamental bargain underpinning the American dream was betrayed. I don't know if it will be possible to restore, and I fear for the future of the country if workers continue not to earn their fair share.

About This Blog

I am one of the largely nameless, faceless bureaucrats who work tirelessly (and largely thanklessly) to help ensure that poor people don't go hungry - and a billion other tasks government bureaucrats do that no one notices until something stops working. Living and working in DC is making me angry - and I vent my anger as thoughtfully as I can. Well, OK, maybe I'm not terribly angry ... but I thought it was a good name for a blog. If you're also a bureaucrat, or angry, or thoughtful, I'm happy to entertain guest posts.